1 Doing Business 2017 Doing Business About Doing Business measures aspects of Doing Business a simple way facilitates business e xpan- he foundation of business regulation affecting domestic sion and innovation, and makes it easier is the notion that economic activ- small and medium-size firms defined ity, particularly private sector for aspiring entrepreneurs to compete on T based on standardized case scenarios development, benefits from clear and an equal footing. and located in the largest business city coherent rules: Rules that set out and of each economy. In addition, for 11 clarify property rights and facilitate the Doing Business measures aspects of economies a second city is covered. resolution of disputes. And rules that business regulation for domestic firms covers 11 areas of busi- Doing Business enhance the predictability of economic through an objective lens. The focus of ness regulation across 190 economies. interactions and provide contractual the project is on small and medium-size Ten of these areas—starting a business, partners with essential protections companies in the largest business city dealing with construction permits, against arbitrariness and abuse. Such of an economy. Based on standardized getting electricity, registering property, rules are much more effective in shap- case studies, Doing Business presents getting credit, protecting minority ing the inc entives of economic agents in quantitative indicators on the regulations investors, paying taxes, trading across ways that promote growth and develop- that apply to firms at different stages borders, enforcing contracts and resolving insolvency—are included ment where they are reasonably efficient of their life cycle. The results for each in the distance to frontier score and in design, are transparent and accessible economy can be compared with those for Doing ease of doing business ranking. to those for whom they are intended and 189 other economies and over time. Business also measures features of can be implemented at a reasonable cost. labor market regulation, which is not The quality of the rules also has a crucial included in these two measures. bearing on how societies distribute the DOING BUSINESS FACTORS relies on four main Doing Business benefits and finance the costs of develop- MEASURES sources of information: the relevant ment strategies and policies. Doing Business laws and regulations, captures several impor- Doing Business respondents, the governments of the Good rules are a key to social inclusion. tant dimensions of the regulatory economies covered and the World Bank Enabling growth—and ensuring that all environment as it applies to local firms. Group regional staff. people, regardless of income level, can It provides quantitative indicators More than 39,000 professionals in 190 participate in its benefits—requires an on regulation for starting a business, economies have assisted in providing environment where new entrants with dealing with construction permits, get- Doing Business the data that inform the drive and good ideas can get started ting electricity, registering property, indicators over the past 14 years. in business and where good firms can getting credit, protecting minority This year’s report expands the paying govern- invest and expand. The role of investors, paying taxes, trading across taxes indicator set to cover postfiling ment policy in the daily operations of borders, enforcing contracts and resolv- processes—what happens after a firm domestic small and medium-size firms is Doing Business ing insolvency (table 2.1). pays taxes—such as tax refunds, tax Doing Business a central focus of the data. also measures features of labor market audits and administrative tax appeals. The objective is to encourage regulation does regulation. Although Doing Business includes a gender Doing Business that is designed to be efficient, acces- not present rankings of economies on dimension in four of the 11 indicator sible to all and simple to implement. the labor market regulation indicators sets. Starting a business, registering Onerous regulation diverts the energies or include the topic in the aggregate property and enforcing contracts of entrepreneurs away from developing distance to frontier score or ranking on present a gender dimension for the first their businesses. But regulation that is the ease of doing business, it does pres- time this year. Labor market regulation efficient, transparent and implemented in ent the data for these indicators. already captured gender disaggregated data in last year’s report.
2 DOING BUSINESS 2017 14 managed to create rules that facilitate measures—11 areas of business regulation TABLE 2.1 What Doing Business interactions in the marketplace without Indicator set What is measured needlessly hindering the development of Procedures, time, cost and paid-in minimum capital to start a Starting a business the private sector. limited liability company Dealing with construction permits Procedures, time and cost to complete all formalities to build a The distance to frontier and warehouse and the quality control and safety mechanisms in the construction permitting system ease of doing business ranking To provide different perspectives on Procedures, time and cost to get connected to the electrical grid, Getting electricity the reliability of the electricity supply and the transparency of tariffs the data, presents data Doing Business Procedures, time and cost to transfer a property and the quality of Registering property both for individual indicators and for the land administration system two aggregate measures: the distance Movable collateral laws and credit information systems Getting credit to frontier score and the ease of doing Protecting minority investors Minority shareholders’ rights in related-party transactions and in business ranking. The distance to frontier corporate governance score aids in assessing the absolute Paying taxes Payments, time and total tax rate for a firm to comply with all tax level of regulatory performance and regulations as well as post-filing processes how it improves over time. This measure Trading across borders Time and cost to export the product of comparative advantage and shows the distance of each economy to import auto parts the “frontier,” which represents the best Enforcing contracts Time and cost to resolve a commercial dispute and the quality of judicial processes performance observed on each of the indicators across all economies in the Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency Doing Business sample since 2005 or the third year in which data were collected Labor market regulation Flexibility in employment regulation and aspects of job quality for the indicator. The frontier is set at the highest possible value for indicators How the indicators are selected direct investment, market capitalization calculated as scores, such as the strength in stock exchanges and private credit as of legal rights index or the quality of land The choice of the 11 sets of Doing 2 a percentage of GDP. administration index. This underscores indicators has been guided by Business the gap between a particular economy’s economic research and firm-level data, performance and the best performance specifically data from the World Bank Some Doing Business indicators give a 1 at any point in time and to assess the Enterprise Surveys. higher score for more regulation and These surveys absolute change in the economy’s regula- better-functioning institutions (such provide data highlighting the main tory environment over time as measured as courts or credit bureaus). Higher obstacles to business activity as reported Doing Business by . The distance to frontier scores are given for stricter disclosure by entrepreneurs in more than 130,000 is first computed for each topic and then requirements for related-party trans- firms in 139 economies. Access to averaged across all topics to compute actions, for example, in the area of finance and access to electricity, for the aggregate distance to frontier score. protecting minority investors. Higher example, are among the factors identified The ranking on the ease of doing business scores are also given for a simplified by the surveys as important to busi- complements the distance to frontier way of applying regulation that keeps nesses—inspiring the design of the Doing score by providing information about compliance costs for firms low—such Business indicators on getting credit and an economy’s performance in business as by easing the burden of business getting electricity. regulation relative to the performance start-up formalities with a one-stop shop of other economies as measured by or through a single online portal. Finally, Doing Business The design of the Doing Business . Doing Business scores reward economies indicators has also been informed by that apply a risk-based approach to theoretical insights gleaned from exten- uses a simple averaging Doing Business regulation as a way to address social sive research and the literature on the approach for weighting component and environmental concerns—such as role of institutions in enabling economic indicators, calculating rankings and by imposing a greater regulatory burden development. In addition, the background determining the distance to frontier on activities that pose a high risk to the papers developing the methodology 3 score. population and a lesser one on lower-risk for each of the indicator Doing Business Each topic covered by Doing activities. Thus the economies that rank sets have established the importance Business relates to a different aspect of highest on the ease of doing business of the rules and regulations that Doing the business regulatory environment. are not those where there is no regula- focuses on for such economic Business The distance to frontier scores and governments have tion—but those where outcomes as trade volumes, foreign rankings of each economy vary, often
3 15 ABOUT DOING BUSINESS considerably, across topics, indicating Doing Business does not cover TABLE 2.2 What that a strong performance by an econo- Examples of areas not covered my in one area of regulation can coexist with weak performance in another (figure Macroeconomic stability 2.1). One way to assess the variability Development of the financial system of an economy’s regulatory performance Quality of the labor force is to look at its distance to frontier scores Incidence of bribery and corruption across topics (see the country tables). Morocco, f or example, has an overall dis- Market size tance to frontier score of 67.50, meaning Lack of security that it is two-thirds of the way from the Examples of aspects not included within the areas covered worst to the best performance. Its distance In paying taxes, personal income tax rates to frontier score is 92.34 for starting a business, 83.51 for paying taxes and 81.12 In getting credit, the monetary policy stance and the associated ease or tightness of credit conditions for firms for trading across borders. At the same time, it has a distance to frontier score In trading across borders, export or import tariffs and subsidies of 33.89 for resolving insolvency, 45 for In resolving insolvency, personal bankruptcy rules getting credit and 53.33 for protecting minority investors. not measure the cost of tariffs or of not, for example, capture aspects of Doing Business international transport. macroeconomic stability, development provides a narrow perspective on the of the financial system, market size, the DOING BUSINESS FACTORS infrastructure challenges that firms face, incidence of bribery and corruption or the DOES NOT MEASURE particularly in the developing world, quality of the labor force. through these indicators. It does not Many important policy areas are not address the extent to which inadequate The focus is deliberately narrow even ; even within Doing Business covered by roads, rail, ports and communications within the relatively small set of indica- the areas it covers its scope is narrow may add to firms’ costs and undermine tors included in Doing Business . The (table 2.2). does not Doing Business competitiveness (except to the extent time and cost required for the logistical measure the full range of factors, policies that the trading across borders indicators process of exporting and importing goods and institutions that affect the quality indirectly measure the quality of ports is captured in the trading across borders of an economy’s business environment and border connections). Similar to the indicators, for example, but they do or its national competitiveness. It does FIGURE 2.1 An economy’s regulatory environment may be more business-friendly in some areas than in others Distance to frontier score (0–100) Average of highest three topic scores Average of all topic scores 100 Average of lowest three topic scores 90 80 70 60 50 40 30 20 10 0 Italy Mali Haiti India Chile Chad Israel Niger Benin Japan Belize Malta Tonga Eritrea Bolivia Ghana Turkey Jordan Liberia Ireland Cyprus Algeria Estonia Austria Malawi Zambia Canada Albania Guyana Ukraine Senegal Georgia Lesotho Djibouti Rwanda Panama Bulgaria Ethiopia Slovenia Portugal St. Lucia Namibia Lao PDR Lebanon Armenia Moldova Malaysia Denmark Tajikistan Barbados Mongolia Columbia Dominica Indonesia Mauritius Myanmar Botswana Honduras Argentina Swaziland Seychelles Cameroon Zimbabwe Azerbaijan El Salvador Guatemala Korea, Rep. Uzbekistan Switzerland Cabo Verde Congo, Rep. Madagascar Luxembourg Côte d’Ivoire Gambia, The Mozambique New Zealand Taiwan, China Venezuela, RB Guinea-Bissau Czech Republic Slovak Republic Kyrgyz Republic United Kingdom Macedonia, FYR Iran, Islamic Rep. Equatorial Guinea Russian Federation Brunei Darussalam Trinidad and Tobago West Bank and Gaza Micronesia, Fed. Sts. São Tomé and Príncipe Bosnia and Herzegovina Central African Republic Source: database. Doing Business Note: topics included in this year’s aggregate distance to frontier score. The figure is illustrative only; Doing Business The distance to frontier scores reflected are those for the 10 it does not include all 190 economies covered by this year’s report. See the country tables for the distance to frontier scores for each topic for all economies. Doing Business
4 DOING BUSINESS 2017 16 indicators on trading across borders, all TABLE 2.3 Advantages and limitations of the Doing Business methodology aspects of commercial legislation are not Limitations Advantages Feature covered by those on starting a business Reduces scope of data; only regulatory Makes data comparable across Use of standardized or protecting minority investors. And reforms in areas measured can be economies and methodology case scenarios Doing Business measures only a while systematically tracked; the case transparent, using case scenarios that scenarios may not be the most are common globally few aspects within each area that it common in a particular economy covers, business regulation reforms Focus on largest Makes data collection manageable Reduces representativeness of data should not focus only on these aspects, a business city for an economy if there are significant (cost-effective) and data comparable differences across locations because those that it does not measure are also important. Unable to reflect reality for informal Keeps attention on formal sector— Focus on domestic and sector—important where that is formal sector where regulations are relevant and large—or for foreign firms facing a firms are most productive Doing Business does not attempt to quan- different set of constraints tify all costs and benefits of a particular Indicators less able to capture variation Reliance on expert Ensures that data reflect knowledge in experiences among entrepreneurs respondents of those with most experience in law or regulation to society as a whole. conducting types of transactions The paying taxes indicators measure the measured total tax rate, which, in isolation, is a cost Where systematic compliance with the Focus on the law Makes indicators “actionable”— to businesses. However, the indicators law is lacking, regulatory changes will because the law is what policy makers not achieve full results desired can change do not measure—nor are they intended Doing Business database. Source: to measure—the benefits of the social a. In economies with a population of more than 100 million as of 2013, covers business regulation Doing Business and economic programs funded with in both the largest and second largest business city. tax revenues. Measuring the quality and efficiency of business regulation pro- world. Second, this choice reflects the vides only one input into the debate on within a country, particularly in federal Doing Business focus of on expanding egulatory burden associated with the r states and large economies. But gather- opportunities for entrepreneurship: achieving regulatory objectives, which ing data for every relevant jurisdiction in investors are encouraged to venture Doing can differ across economies. each of the 190 economies covered by into business when potential losses are provides a starting point for Business is infeasible. Nevertheless, Doing Business limited to their capital participation. this discussion and should be used in where policy makers are interested in conjunction with other data sources. generating data at the local level, beyond Another assumption underlying the the largest business city, Doing Business indicators is that entre- Doing Business has complemented its global indica- preneurs have knowledge of and comply tors with subnational studies (box 2.1). ADVANTAGES AND with applicable regulations. In practice, Coverage was extended to the second LIMITATIONS OF THE entrepreneurs may not be aware of what largest business city in economies with a METHODOLOGY needs to be done or how to comply with population of more than 100 million (as regulations and may lose considerable of 2013) in 2015 . Doing Business methodology is Doing Business The time trying to find out. Alternatively, they designed to be an easily replicable way to may intentionally avoid compliance—by Doing Business recognizes the limitations benchmark specific aspects of business not registering for social security, for of the standardized case scenarios and regulation. Its advantages and limitations example. Firms may opt for bribery and assumptions. But while such assumptions should be understood when using the other informal arrangements intended come at the expense of generality, they data (table 2.3). to bypass the rules where regulation is also help to ensure the comparabil- particularly onerous—an aspect that ity of data. Some topics Doing Business Ensuring comparability of the data across helps explain differences between the are complex, and so it is important a global set of economies is a central de jure data provided by Doing Business that the standardized cases are defined consideration for the Doing Business and the de facto insights offered by the carefully. For example, the standardized indicators, which are developed around 4 World Bank Enterprise Surveys. case scenario usually involves a limited standardized case scenarios with specific Levels liability company or its legal equivalent. assumptions. One such assumption is of informality tend to be higher in There are two reasons for this assump- the location of a standardized business— economies with particularly burdensome tion. First, private, limited liability Doing Business the subject of the case regulation. Compared with their formal companies are the most prevalent busi- study—in the largest business city of the sector counterparts, firms in the informal ness form (for firms with more than one economy. The reality is that business reg- sector typically grow more slowly, have owner) in many economies around the ulations and their enforcement may differ poorer access to credit and employ fewer
5 17 ABOUT DOING BUSINESS Doing Business BOX 2.1 studies Comparing regulation at the local level: subnational Subnational Doing Business studies, which are undertaken at the request of governments, expand the Doing Business analysis be- yond an economy’s largest business city. They measure variation in regulations or in the implementation of national laws across locations within an economy (as in Poland) or a region (as in South East Europe). Data collected by subnational studies over the past three years show that there can be substantial variation within an economy (see figure). In Mexico, for example, in 2016 registering a property transfer took as few as 9 days in Puebla and as many as 78 in Oaxaca. Indeed, within the same economy one can find locations that perform as well as economies ranking in the top 20 on the ease of registering property and locations that perform as poorly as economies ranking in the bottom 40 on that indicator. Different locations, different regulatory processes, same economy i T ster property (d ) ays i me to reg Oaxaca (78) 80 Isiolo (73) 58 60 Mangaung (52) Wroclaw (51) Mombasa (41) 40 33 32 Melilla (26) Johannesburg 26 (23) Bialystok 17 (18) 20 Madrid Puebla (12.5) (9) 0 Poland South Africa Spain Mexico Kenya Average time Most time Least time Source: Doing Business database. Subnational The average time shown for each economy is based on all locations covered by the data: 11 cities in Kenya in 2016, 32 states i Note: n Mexico in 2016, 18 cities in Poland in 2015, 9 cities in South Africa in 2015 and 19 cities in Spain in 2015. While subnational Doing Business studies generate disaggregated data on business regulation, they go beyond a data collection exercise. They have been shown to be strong motivators for regulatory reform at the local level: • Results can be benchmarked both locally and globally because the data produced are comparable across locations within the economy and internationally. Comparing locations within the same economy—which share the same legal and regulatory framework—can be revealing: local officials struggle to explain why doing business is more challenging in their jurisdiction than in a neighboring one. • Highlighting good practices that exist in some locations but not others within an economy helps policy makers recognize the potential for replicating these good practices. This can yield discus sions about regulatory reform across different levels of government, providing opportunities for local governments and agencies to learn from one another and resulting in local ownership and capacity building. Since 2005 subnational reports have covered 438 locations in 65 economies (see map). Seventeen economies—including the Arab Republic of Egypt, Mexico, Nigeria, the Philippines, and the Russian Federation—have undertaken two or more rounds of subnational data collection to measure progress over time. This year subnational studies were completed in Kenya, Mexico and the United Arab Emirates. Ongoing studies include those in Afghanistan (5 cities), Colombia (32 cities), three EU member states (22 cities in Bulgaria, Hungary and Romania) and Kazakhstan (8 cities). Subnational reports are available on the Doing Business website at http://www.doingbusiness.org/subnational. (continued)
6 DOING BUSINESS 2017 18 Comparing regulation at the local level: subnational Doing Business studies ( continued) BOX 2.1 Subnational studies cover a large number of cities across all regions of the world 56 cities in Europe and Central Asia 56 cities in OECD high-income economies 30 cities in the Middle East and North Africa 41 cities 76 cities in South Asia in East Asia and the Pacific 81 cities in Sub-Saharan Africa 98 cities in Latin America and the Caribbean Budget, Performance Review & Strategic Planning IBRD 42377 | General Services Printing & Multimedia JULY 2016 This map was produced by the Map ECONOMIES WITH ONE SUBNATIONAL OR REGIONAL STUDY Design Unit of The World Bank. The boundaries, colors, denominations ECONOMIES WITH MORE THAN ONE SUBNATIONAL OR REGIONAL STUDY and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. Doing Business Subnational Source: database. which little or no data are available from Business indicators are based on a reading workers—and these workers remain other sources. The data are collected of the law. In addition to filling out ques- outside the protections of labor law through several rounds of communica- Doing Business respondents tionnaires, and, more generally, other legal protec- 5 tion with expert respondents (both submit references to the relevant laws, tions embedded in the law. Firms in the private sector practitioners and govern- Doing regulations and fee schedules. The informal sector are also less likely to pay ment officials), through responses to Business team collects the texts of the rel- measures one set Doing Business taxes. questionnaires, conference calls, written evant laws and regulations and checks the of factors that help explain the occur- correspondence and visits by the team. questionnaire responses for accuracy. The rence of informality and give policy Doing Business relies on four main sources team will examine the civil procedure code, makers insights into potential areas of of information: the relevant laws and reg- for example, to check the maximum num- regulatory reform. respondents, the Doing Business ulations, ber of adjournments in a commercial court governments of the economies covered dispute, and read the insolvency code to and the World Bank Group regional staff identify if the debtor can initiate liquidation DATA COLLECTION IN (figure 2.2). For a detailed explanation or reorganization proceeding. These and PRACTICE Doing Business of the methodology, see other types of laws are available on the 6 the data notes. law library website. Doing Business The data are based on a Doing Business Since detailed reading of domestic laws and the data collection process involves an annual update of an established database, regulations as well as administrative Relevant laws and regulations requirements. The report covers 190 having a very large sample of respon- indicators are based Doing Business The dents is not strictly necessary. In economies—including some of the mostly on laws and regulations: around smallest and poorest economies, for principle, the role of the contributors Doing 60% of the data embedded in the
7 19 ABOUT DOING BUSINESS FIGURE 2.2 How Doing Business collects and verifies the data Jun. Aug. Nov. Dec. Jan. Feb. Mar. Apr. May Jul. Sept. Oct. Data collection and analysis Report Questionnaire development launch The Doing Business team distributes the questionnaires, analyzes the relevant laws and regulations along Data verification The report is published, with the information in the The team updates Doing Business followed by media outreach questionnaires. the questionnaires and consults and findings dissemination. with internal and external experts. The The team shares Doing Business Doing Business team travels to preliminary information on reforms around 30 economies. with governments (through the World The team engages in Doing Business Bank Group’s Board of Executive conferences calls, video conferences Directors) and World Bank Group and in-person meetings with regional teams for their feedback. government officials and private The sector practitioners. team analyzes the Doing Business data and writes the report. Comments Governments and World Bank Group on the report and data are received regional teams submit information on from across the World Bank Group regulatory changes that could through an internal review process. potentially be included in the global count of regulatory reforms. professionals answer the questionnaires is largely advisory—helping the Doing Doing Business respondents related to paying taxes, dealing with Business team to locate and understand More than 39,000 professionals in 190 construction permits, trading across bor- the laws and regulations. There are quickly economies have assisted in providing ders and getting electricity. Information diminishing returns to an expanded pool Doing Business the data that inform the 7 that is incorporated into the indicators is of contributors. This notwithstanding, indicators over the past 14 years. also provided by certain public officials the number of contributors rose by 58% This year’s report draws on the inputs of 8 (such as registrars from the company between 2010 and 2016. more than 12,500 professionals. Table or property registry). 12.2 in the data notes lists the number of Extensive consultations with multiple respondents for each indicator set. The approach is to work Doing Business The contributors are conducted by the website shows the num- Doing Business with legal practitioners or other profes- team to minimize measurement error ber of respondents for each economy and sionals who regularly undertake the for the rest of the data. For some each indicator set. transactions involved. Following the indicators—for example, those on deal- standard methodological approach for ing with construction permits, enforcing Selected on the basis of their expertise in Doing Business time-and-motion studies, contracts and resolving insolvency—the these areas, respondents are profession- breaks down each process or transaction, time component and part of the cost als who routinely administer or advise such as starting a business or register- component (where fee schedules are on the legal and regulatory requirements ing a building, into separate steps to lacking) are based on actual practice in the specific areas covered by Doing ensure a better estimate of time. The rather than the law on the books. This . Because of the focus on legal Business time estimate for each step is given by introduces a degree of judgment by and regulatory arrangements, most of practitioners with significant and routine respondents on what actual practice the respondents are legal professionals experience in the transaction. looks like. When respondents disagree, such as lawyers, judges or notaries. In the time indicators reported by Doing addition, officials of the credit bureau or There are two main reasons that Business represent the median values registry complete the credit information does not survey firms. Doing Business of several responses given under the questionnaire. Accountants, architects, The first relates to the frequency with assumptions of the standardized case. engineers, freight forwarders and other
8 DOING BUSINESS 2017 20 Data adjustments capital requirement for new firms, invest which firms engage in the transactions in company and property registries to captured by the indicators, which is gener- Information on data corrections is pro- increase their efficiency, or improve the ally low. For example, a firm goes through vided in the data notes and on the Doing efficiency of tax administration by adopt- the start-up process once in its existence, Business website. A transparent complaint ing the latest technology to facilitate while an incorporation lawyer may carry procedure allows anyone to challenge the the preparation, filing and payment of out 10 such transactions each month. The data. From November 2015 to October taxes by the business community. And incorporation lawyers and other experts 2016 the team received and responded they can undertake court reforms to Doing Business providing information to to more than 240 queries on the data. If shorten delays in the enforcement of con- are therefore better able to assess the changes in data are confirmed, they are tracts. But some Doing Business indicators process of starting a business than are immediately reflected on the website. capture procedures, time and costs that individual firms. They also have access to involve private sector participants, such current regulations and practices, while a as lawyers, notaries, architects, electri- firm may have faced a different set of rules USES OF THE DOING cians or freight forwarders. Governments when incorporating years before. The DATA BUSINESS may have little influence in the short second reason is that the Doing Business run over the fees these professions questionnaires mostly gather legal infor- was designed with two Doing Business charge, though much can be achieved mation, which firms are unlikely to be fully main types of users in mind: policy makers 9 by strengthening professional licensing familiar with. For example, few firms will and researchers. govern- It is a tool that regimes and preventing anticompetitive know about all the many legal procedures ments can use to design sound business behavior. And governments have no con- involved in resolving a commercial dispute regulatory policies. Nevertheless, the trol over the geographic location of their through the courts, even if they have gone data are limited in scope Doing Business economy, a factor that can adversely through the process themselves. But a liti- and should be complemented with other affect businesses. gation lawyer should have little difficulty in Doing Business sources of information. providing the requested information on all focuses on a few specific rules relevant indicators Doing Business While many the processes. to the specific case studies analyzed. are actionable, this does not necessarily These rules and case studies are mean that they are all “action-worthy” chosen to be illustrative of the business Governments and World Bank in a particular context. Business regula- regulatory environment, but they are Group regional staff tory reforms are only one element of a not a comprehensive description of that After receiving the completed ques- strategy aimed at improving competitive- environment. By providing a unique tionnaires from the Doing Business ness and establishing a solid foundation data set that enables analysis aimed at respondents, verifying the information for sustainable economic growth. There better understanding the role of business against the law and conducting follow- are many other important goals to pur- regulation in economic development, up inquiries to ensure that all relevant sue—such as effective management of Doing Business is also an important source Doing Business information is captured, the public finances, adequate attention to of information for researchers. team shares the preliminary descriptions education and training, adoption of the governments of regulatory reforms with latest technologies to boost economic (through the World Bank Group’s Board Governments and policy makers productivity and the quality of public ser- of Executive Directors) and with regional Doing Business offers policy makers a vices, and appropriate regard for air and staff of the World Bank Group. Through benchmarking tool useful in stimulating water quality to safeguard public health. government authorities this process policy debate, both by exposing potential Governments must decide what set of and World Bank Group staff working on challenges and by identifying good prac- priorities best suits their needs. To say most of the economies covered can alert tices and lessons learned. Despite the governments should work toward that the team about, for example, regulatory narrow focus of the indicators, the initial a sensible set of rules for private sector reforms not included by the respondents debate in an economy on the results they activity (as embodied, for example, in or additional achievements of regulatory highlight typically turns into a deeper indicators) does not the Doing Business reforms already captured in the database. discussion on areas where business suggest that doing so should come at the Doing Business team can then turn to The regulatory reform is needed, including expense of other worthy policy goals. the local private sector experts for further areas well beyond those measured by consultation and, as needed, corrobora- . Doing Business governments have Over the past decade tion. In addition, the team responds for- increasingly turned to Doing Business governments mally to the comments of indicators can be Doing Business Many as a repository of actionable, objec- or regional staff and provides explana considered actionable. For example, tive data providing unique insights into ions of the scoring decisions. governments can set the minimum
9 21 ABOUT DOING BUSINESS Doing capacity. With the availability of organizations, both for the develop- good practices worldwide as they have indicators on trading across Business ment of new indexes and to produce come to understand the importance of borders—which measure the time, pro- research papers. business regulation as a driving force of cedural and monetary costs of exporting competitiveness. To ensure the coordina- and importing—several empirical studies tion of efforts across agencies, econo- Many research papers have shown the have assessed how trade costs affect the mies such as Colombia, Malaysia and importance of business regulation and export and import performance of econo- Russia have formed regulatory reform how it relates to different economic 11 mies. A rich body of empirical research committees. These committees use the outcomes. One of the most cited theo- shows that efficient infrastructure and a Doing Business indicators as one input retical mechanisms on how excessive healthy business environment are posi- to inform their programs for improving business regulation affects economic 15 tively linked to export performance. the business environment. More than performance and de velopment is that 40 other economies have also formed it makes it too costly for firms to such committees. In East Asia and the engage in the formal economy, caus- Improving infrastructure efficiency and Pacific they include: Brunei Darussalam; ing them not to invest or to move to trade logistics bring documented benefits Indonesia; the Republic of Korea; the the informal economy. Recent studies to an economy’s balance of trade and Philippines; Taiwan, China; and Thailand. have conducted extensive empirical individual traders but delays in transit In the Middle East and North Africa: Doing testing of this proposition using time can reduce exports: a study analyz- the Arab Republic of Egypt, Kuwait, and other related indicators. Business ing the importance of trade logistics Morocco, Saudi Arabia and the United According to one study, for example, found that a 1-day increase in transit time Arab Emirates. In South Asia: India and a reform that simplified business reduces exports by an average of 7% 16 Pakistan. In Europe and Central Asia: registration in Mexican municipalities in Sub-Saharan Africa. Another study Albania, Croatia, Georgia, Kazakhstan, increased registration by 5% and wage found that a 1-day delay in transport time Kosovo, the Kyrgyz Republic, the for- employment by 2.2%—and, as a result for landlocked economies and for time- mer Yugoslav Republic of Macedonia, of increased competition, reduced the sensitive agricultural and manufacturing Moldova, Montenegro, Poland, Tajikistan, income of incumbent businesses by products has a particularly large negative 12 Ukraine and Uzbekistan. In Sub-Saharan 3%. impact, reducing trade by more than 1% Business registration reforms 17 Africa: the Democratic Republic of Congo, for each day of delay. in Mexico also resulted in 14.9% of Delays while clear- the Republic of Congo, Côte d’Ivoire, informal business owners shifting to ing customs procedures also negatively 13 Burundi, Guinea, Kenya, Liberia, Malawi, the formal economy. impact a firm’s ability to export, particu- Mali, Mauritius, Nigeria, Rwanda, Sierra larly when goods are destined for new 18 Leone, Togo, Zambia and Zimbabwe. clients. And in economies with flexible Considerable effort has been devoted And in Latin America: Chile, Costa Rica, to studying the link between govern- entry regulations, a 1% increase in trade the Dominican Republic, Guatemala, ment regulation of firm entry and is associated with an increase of more Mexico, Panama and Peru. Governments employment growth. In Portugal than 0.5% in income per capita, but has have reported more than 2,900 regula- business reforms resulted in a reduc- no positive income effects in economies 19 tory reforms, 777 of which have been tion of the time and cost needed for with more rigid regulation. Research 10 Doing Business since 2003. informed by company formalization, increasing has also found that—although domestic the number of business start-ups buyers benefit from having goods of by 17% and creating 7 new jobs per varying quality and price to choose Many economies share knowledge on 100,000 inhabitants per month. But from—import competition only results in the regulatory reform process related to although these start-ups were smaller minimal quality upgrading in OECD high- Doing Business . the areas measured by and more likely to be female-owned income economies with cumbersome Among the most common venues for than before the reform, they were also regulation while it has no effect on quality this knowledge sharing are peer-to-peer headed by less experienced and poorly- upgrading in non-OECD economies with learning events—workshops where offi- 20 educated entrepreneurs with lower cumbersome regulation. cials from different governments across Therefore, the 14 sales per worker. a region or even across the globe meet potential gains for consumers from to discuss the challenges of regulatory import competition are reduced where reform and to share their experiences. regulations are cumbersome. In many economies companies engaged in international trade struggle with high measures aspects of busi- Doing Business trade costs arising from transport, logis- Think tanks and other research tics and regulations, impeding their com- ness regulation affecting domestic firms. organizations However, research shows that better petitiveness and preventing them from data are widely used Doing Business taking full advantage of their productive business regulation—as measured by by think tanks and other research
10 DOING BUSINESS 2017 22 Doing environment data generated by Doing Business Labor market regulation—as measured —is associated with high- 21 —has been shown to by Doing Business by incorporating it into the study Business er levels of foreign direct investment. have important implications for the of other important social and economic Furthermore, foreign direct investment labor market. According to one study, issues across economies and regions. can either impede or promote domestic graduating from school during a time Doing They prove that, taken individually, investment depending on how business of adverse economic conditions has a Business indicators remain a useful start- friendly entry regulations are in the persistent, harmful effect on workers’ ing point for a rich body of analysis across host economy. In fact, foreign direct subsequent employment opportunities. different areas and dimensions in the investment has been shown to crowd The persistence of this negative effect research world. out domestic investment in economies is stronger in countries with stricter with costly processes for starting a 22 31 employment protection legislation. business. Doing Business has contributed substan- Another study showed that tially to the debate on the importance economies with higher international Rigid employment protection legislation of business regulation for economic market integration have, on average, can also have negative distributional development. By expanding the time consequences. A study on Chile, for easier and simpler processes for starting 23 series and the scope of the data with the example, found that the tightening of a business. Doing recent methodology expansion, job security rules was associated with hopes to continue being a key Business lower employment rates for youth, Recent empirical work shows the impor- 32 reference going forward. unskilled workers and women. tance of well-designed credit market regulations and well-functioning court Indexes systems for debt recovery. For example, a reform making bankruptcy laws more NEW AREAS INCLUDED IN Doing Business identified 17 different efficient significantly improved the recov- Doing data projects or indexes that use THIS YEAR’S REPORT 24 33 ery rate of viable firms in Colombia. Business as one of its sources of data. In Most of these projects or institutions a multi-economy study, the introduction report includes Doing Business This year’s use indicator level data and not the of collateral registries for movable assets data for one new economy, Somalia, aggregate ease of doing business rank- was shown to increase firms’ access to expands the paying taxes indicators, 25 finance by approximately 8%. ing. Starting a business is the indicator includes gender dimensions in four In India set most widely used, followed by labor indicator sets and adds a new annex on the establishment of debt recovery tri- market regulation and paying taxes. selling to the government. bunals reduced non-performing loans by Doing These indexes typically combine 28% and lowered interest rates on larger data with data from other Business For any new indicators or economies loans, suggesting that faster processing sources to assess an economy along a added to the distance to frontier score of debt recovery cases cut the cost of 26 particular aggregate dimension such and the ease of doing business ranking, credit. An in-depth review of global bank as competitiveness or innovation. The the data are presented for the last two flows revealed that firms in economies Heritage Foundation’s Index of Economic consecutive years to ensure that there with better credit information sharing Freedom, for example, has used six are at least two years of comparable data. systems and higher branch penetration 27 Doing Business indicators to measure evade taxes to a lesser degree. Strong the degree of economic freedom in the shareholder rights have been found to Paying taxes 34 world. lower financial frictions, especially for Economies that score better in The paying taxes indicator set is the last firms with large external finance relative to these six areas also tend to have a high to be expanded as part of the methodol- their capital stock (such as small firms or ogy improvement process started three degree of economic freedom. 28 firms in distress). years ago that affects 9 of the 10 areas covered in the ease of doing business Similarly, the World Economic Forum ranking. Only the starting a business data in its Global uses Doing Business There is also a large body of theoretical indicators remain under the original Competitiveness Index to demonstrate and empirical work investigating the dis- methodology. how competitiveness is a global driver of tortionary effects of high tax rates and economic growth. The organization also cumbersome tax codes and procedures. Doing Business indicators in four other uses The paying taxes indicator set assesses According to one study, business licens- indexes that measure technological readi- the number of payments, time and total ing among retail firms rose 13% after a 29 ness, human capital development, travel tax rate for a firm to comply with all tax reform in Brazil. Another showed and tourism sector competitiveness and tax regulations. This year’s report adds that a 10% reduction in tax complex- trade facilitation. These publicly acces- a new indicator to include postfiling ity is comparable to a 1% reduction in 30 sible sources expand the general business processes. Under postfiling processes, effective corporate tax rates.
11 23 DOING BUSINESS ABOUT Within the registering property indica- measures value added tax access for small and medium-size firms Doing Business tors, a gender component has been refund, corporate income tax audits and to government contracts. And for the added to the quality of land administra- administrative tax appeals. Under value complaints mechanism component, tion index. This component measures mea- added tax refunds, Doing Business the annex discusses the process to file women’s ability to use, own, and transfer sures how long it takes to comply and to a grievance regarding a public procure- property according to the law. Finally, obtain back the value added tax paid on ment project, including who can file a within the enforcing contracts indicator a capital purchase (including any value complaint, where to file a complaint and set, economies will be scored on having added tax audits associated with it). the independence of the review body and equal evidentiary weight of women’s Under the corporate income tax audits, what remedies are granted. and men’s testimony in court. Doing Business focuses on the time it takes and the process to complete a tax The labor market regulation indicators audit when a firm mistakenly declares NOTES have included data on gender compo- a lower tax liability than it should have. 1. Data from the World Bank Enterprise nents for the past two years. These data also measures good prac- Doing Business Doing Business Surveys and complement include: whether nonpregnant and non- tices in the tax appeals process, such as each other as two sides of the same coin. nursing women can work the same night independence from the tax collecting They both provide useful information on the business environment of an economy, but hours as men; whether the law mandates agency, but those are not scored. In in significantly different ways. The scope of equal remuneration for work of equal this year’s report there is a case study is narrower than the Enterprise Doing Business value; whether the law mandates non- dedicated to analyzing the results of this Surveys. However, by focusing on actionable indicators related to business regulation, discrimination based on gender in hiring; methodology expansion. provides a clear roadmap Doing Business whether the law mandates paid or unpaid for governments to improve. Doing Business maternity leave; the minimum length Adding gender components uses standardized case scenarios while the Enterprise Surveys use representative of paid maternity leave; and whether This year’s report presents Doing Business samples. For more on the Enterprise Surveys employees on maternity leave receive a gender dimension in four of the indica- and the differences between the Enterprise 100% of wages. tor sets: starting a business, registering Surveys and , see the website at Doing Business property, enforcing contracts and labor http://www.enterprisesurveys.org. 2. These papers are available on the Doing market regulation. Three of these areas government Selling to the Business website at http://www.doingbusiness are included in the distance to frontier The analysis uses a new pilot indicator .org/methodology. score and in the ease of doing business government, which set, selling to the For getting credit, indicators are weighted 3. proportionally, according to their contribution ranking, while the fourth—labor market measures public procurement regulation to the total score, with a weight of 60% regulation—is not. and is presented as an annex to this assigned to the strength of legal rights index year’s report. The procurement process and 40% to the depth of credit information index. In this way each point included in these has traditionally assumed Doing Business is analyzed across five main areas: acces- indexes has the same value independent of that the entrepreneurs or workers dis- sibility and transparency, bid security, the component it belongs to. Indicators for all cussed in the case studies were men. payment delays, incentives for small and other topics are assigned equal weights. For more details, see the chapter on the distance This was incomplete by not reflecting medium-size enterprises and complaints to frontier and ease of doing business ranking. processes correctly the Doing Business mechanisms. Accessibility and trans- 4. Hallward-Driemeier and Pritchett 2015. as applied to women—which in some parency covers whether information is 5. Schneider 2005; La Porta and Shleifer 2008. economies may be different from the accessible to prospective bidders and 6. For the law library, see the website at http://www.doingbusiness.org/law-library. processes applied to men. Starting how that information can be accessed. The annual data collection exercise is an 7. Doing Business measures the this year, The analysis on bid security discusses the Doing Business update of the database. The starting a business process for two case amount that prospective bidders need to team and the contributors examine the extent to which the regulatory framework scenarios: one where all entrepreneurs pay upfront in order to be considered in has changed in ways relevant for the features are men and one where all entrepre- the bidding process and the form of the captured by the indicators. The data collection neurs are women. In economies where security deposit. For payment delays, the process should therefore be seen as adding each year to an existing stock of knowledge the processes are more onerous if the annex presents the time it takes for the reflected in the previous year’s report, not as entrepreneur is a woman, Doing Business firm to receive payment from the govern- creating an entirely new data set. now counts the extra procedures applied ment after the contract is completed and 8. While about 12,500 contributors provided to roughly half of the population that the service has been delivered. The incen- data for this year’s report, many of them completed a questionnaire for more than is female (for example, obtaining a tives for small and medium-size enter- Doing Business indicator set. Indeed, the one husband’s consent or gender-specific prises component measures whether total number of contributions received for requirements for opening a personal economies have set up specific legal this year’s report is more than 15,700, which represents a true measure of the inputs bank account when starting a business). provisions or policies to promote fair
12 DOING BUSINESS 2017 24 received. The average number of contributions Index (CRI); Citi and Imperial College London’s Digital Money Index; International per indicator set and economy is more than Institute for Management Development’s seven. For more details, see http://www World Competitiveness Yearbook; DHL’s .doingbusiness.org/contributors Global Connectedness Index (GCI); /doing-business. PricewaterhouseCoopers’ Paying Taxes 2016: indicators The focus of the Doing Business 9. The Global Picture; and Legatum Institute’s remains the regulatory regime faced by Legatum Prosperity Index. domestic firms engaging in economic activity 34. For more on the Heritage Foundation’s Index in the largest business city of an economy. of Economic Freedom, see the website at Doing Business was not initially designed to http://heritage.org/index. inform decisions by foreign investors, though investors may in practice find the data useful as a proxy for the quality of the national investment climate. Analysis done in the World Bank Group’s Global Indicators Group has shown that countries that have sensible rules for domestic economic activity also tend to have good rules for the activities of foreign subsidiaries engaged in the local economy. 10. Doing Business These are reforms for which is aware that information provided by Doing Business was used in shaping the reform agenda. 11. The papers cited here are just a few examples of research done in the areas measured by Doing Business Doing . Since 2003, when the Business report was first published, 2,182 research articles discussing how regulation in the areas measured by Doing Business influences economic outcomes have been published in peer-reviewed academic journals. Another 6,296 working papers have been posted online. 12. Bruhn 2011. 13. Bruhn 2013. 14. Branstetter and others 2013. 15. Portugal-Perez and Wilson 2011. 16. Freund and Rocha 2011. 17. Djankov, Freund and Pham 2010. 18. Martincus, Carballo and Graziano 2015. 19. Freund and Bolaky 2008. 20. Amiti and Khandelwal 2011. 21. Corcoran and Gillanders 2015. 22. Munemo 2014. 23. Norbäck, Persson and Douhan 2014. 24. Giné and Love 2010. 25. Love, Martinez-Peria and Singh 2013. 26. Visaria 2009. 27. Beck, Lin and Ma 2014. 28. Claessens, Ueda and Yafeh 2014. 29. Monteiro and Assunção 2012. 30. Lawless 2013. 31. Kawaguchi and Murao 2014. 32. Montenegro and Pagés 2003. 33. The 17 indexes are: the Millennium Challenge Corporation’s Open Data Catalog; the Heritage Foundation’s Index of Economic Freedom (IEF); the World Economic Forum’s Global Competitiveness Index (GCI), Networked Readiness Index (NRI, jointly with INSEAD), Human Capital Index (HCI), Enabling Trade Index (ETI) and Travel and Tourism Competitiveness Index (TTCI); INSEAD’s Global Talent Competitiveness Index (GTCI) and Global Innovation Index (GII, jointly with Cornell University and the World Intellectual Property Organization); Fraser Institute’s Economic Freedom of the World (EFW); KPMG’s Change Readiness
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